Q:

Subject: claim multiple primary residences

I have been told that people are able to claim multiple primary residences, since we did not use a second property as a second home.  In fact we used it as our primary residence 2 or 3 days a week on the average, due to operation of the business in another town, for the last 5-6 years; not vacationing.

 

Thanks,

A:

You appear to be mixing up the issue of multiple primary residences.  At any point in time, each person can only have one primary residence for IRS purposes based on such items as time spent, mailing address, voter registration, driver’s license, etc.

With a married couple, it may be possible for each spouse to have his/her own primary residence if they do in fact live in separate locations.  As with all tax matters, the burden of proving the legitimacy of such a classification rests with the taxpayers.  IRS does not have to prove it it isn’t valid.  You have to be able to prove that each spouse has his/her own separate primary residence.

Where you may be confused is the fact that each taxpayers is allowed to exclude up to $250,000 of profit from the sale of a primary residence each two years.  Before May 1997, the tax law had included a once in a lifetime exclusion of gain from a primary residence sale.  The liberalization of the law to allow multiple usage of this tax free break has been a great opportunity for tax free serial home selling, such as with rental properties that are converted into primary residences.

I have some info on home sales on my website.  

Before undertaking any transaction related to this area of taxation, you should consult with a professional tax advisor.

I hope this helps.

Good luck.

Kerry Kerstetter

Q:

Subject: Tax Question

To Whom it May Concern,

Recently my father and I downloaded some material from your website. My father is involved in an appeal with the IRS. He needs some supporting documentation (case histories would be best) in reference to using 179A instead of depreciation for a tractor bought in 1999 then transferred to strictly business use in 2002. Where might we find this type on information. Any help you can offer would be greatly appreciated. Thank you

A:

This is shaping up to be a perfect example of the foolishness of trying to handle tax matters without the assistance of a qualified professional tax advisor.

First is the issue of Section 179 expensing of the tractor.  From your question, I am assuming that your father tried to expense the cost of the tractor on his 2002 1040, when he started using it for farming.  I can’t provide any cases to support this position because it is wrong. Only equipment that has been newly acquired from an unrelated party qualifies for the Section 179 election.  Converting a personal use asset to business use does not meet this test because it has been acquired from himself.  Any competent professional tax preparer would have known that.

Next is the issue of handling an IRS audit without professional representation. This is insane and will result in heavy additional taxes, penalties and interest.

Since he is still with Appeals, it is not too late to hire a professional tax advisor to take over the case on his behalf.  Since it is obvious he will be losing the tax break from the Section 179 on the tractor, it is imperative that a tax pro review the entire tax return to see if there are other areas in which legitimate deductions were overlooked.  It is very likely that a competent tax pro will be able to locate enough other missed deductions to more than offset the loss of the Section 179 deduction.

This is all the more crucial due to the tax year being reviewed, 2002. Any additional taxes that are determined to be owed will also be assessed penalties and interest starting from 4/15/03, which will magnify the bottom line amount IRS will be demanding.  When you toss in the comparable State taxes, penalties and interest on the final IRS determination, there could be a substantial amount due.  Risking that in order to save from having to pay a tax pro’s fee is ludicrous.

Good luck.  I hope this helps.

Kerry Kerstetter